Employers watch their pharmacy costs skyrocket as specialty drugs to treat diseases like hepatitis C hit the market.When Stella Armstrong’s doctor told her that she needed to begin treatment for hepatitis C in October 2013 she refused interferon therapy, the only treatment available to her at that time. To Armstrong, the side effects of the anti-viral drug sounded just as bad as the disease — fever, fatigue, depression, hair loss — and the cure rate was low. So when her doctor told her that new and better medicines were on the horizon, she decided to wait.Three months later, pharmaceutical firm Gilead Sciences Inc. released Sovaldi, a drug with fewer side effects that could cure hepatitis C. In April 2014 she began a three-month treatment course of the new drug. Today she reports that there is no trace of the liver damage that doctors detected two years ago and that she has been cured.“As it progressed and got worse, I started to worry because it was affecting my work,” said Armstrong, 52, an office worker at a construction firm in San Diego. “I was very tired, and my bones and joints were aching all the time. But I was lucky because my employer was very understanding, and I have good medical insurance through the company.”The treatment came with a hefty price tag. Sovaldi costs about $84,000 for a 12-week treatment course, or about $1,000 a pill. News of its cost and its efficacy in curing hepatitis C made international headlines and its release was lauded as the most successful launch for any hepatitis C drug, earning Gilead $5.8 billion in its first two quarters on the market.Hepatitis C From the'Age of Hippies’There are an estimated 3.2 million Americans infected with hepatitis C, according to the U.S. Centers for Disease Control and Prevention. The vast majority of those diagnosed — more than 75 percent — are baby boomers, which has prompted the CDC to recommend that everyone born from 1945 through 1965 be screened. Intravenous drug users, recipients of blood transfusions or organ transplants, and those infected with HIV should also get tested, according to the CDC. The virus is spread through infected blood.“This was the age of hippies experimenting with drugs and sex back in the 1960s,” said Alan Franciscus, founder of the Hepatitis C Support Project, a nonprofit advocacy organization based in San Francisco. “Also, blood was not screened before 1992, and many people contracted it through blood transfusions.”—Rita PyrillisHowever, Sovaldi’s exorbitant cost provoked an outcry from lawmakers, insurers and health care advocates. One employer — the Southeastern Pennsylvania Transportation Authority in Philadelphia — filed a lawsuit in December 2014 against Gilead for alleged price gouging. The state agency said that it paid more than $2.4 million for Sovaldi prescriptions for its employees that year.Employers have been watching anxiously as specialty drug costs for chronic conditions like multiple sclerosis and hepatitis C have soared in recent years. Although only 4 percent of patients take specialty drugs, they represent about 20 percent of today’s drug costs, according to a 2013 report by pharmacy benefits manager CVS Health. Industry experts predict that by 2020 specialty drug spending could more than quadruple to about $402 billion a year, according to the report.While patients and providers hail breakthrough drugs that can cure hepatitis C, like Sovaldi, Harvoni — which Gilead launched last October — and Viekira Pak, which AbbVie launched last December, employers and insurers are scrambling to manage their costs.Sovaldi is typically prescribed with another hepatitis C drug called Olysio, which costs $66,360 per treatment course, according to published reports. Harvoni costs even more than its predecessor at $94,500 for a typical 12-week course of treatment but is taken alone.“Ultimately, this type of pricing is unsustainable because it increases costs for employers, premiums for individuals, and its blowing out state budgets across the country,” said Clare Krusing, spokeswoman for America’s Health Insurance Plans, a Washington, D.C.-based trade group.At 84 Lumber Co. located in Eighty Four, Pennsylvania, specialty drug spending went up by 94 percent between 2013 and 2014, almost entirely because of hepatitis C medications, according to Mark Mollico, the company’s vice president of human resources. The company employs 4,200 people in 30 states.“Our annual spend on Sovaldi went from zero in 2013, because these drugs hadn’t been approved until 2014, to $178,000 last year,” he said. “Costs for one employee alone were $159,000,” which included Sovaldi and Olysio prescriptions. Mollico added that there isn’t much of an insurance discount on these medications.The fact that many employees might not know that they have hepatitis C makes it impossible to predict who will need these drugs down the road, according to Mollico. Hepatitis C is a slow-moving disease, and symptoms sometimes take decades to emerge. Armstrong’s symptoms appeared 13 years after her diagnosis. By the time they do, patients show signs of liver damage. Left untreated, the virus can lead to cirrhosis, liver cancer and liver failure. “Unlike other conditions like heart disease or diabetes where we know we have so many people with those conditions, hepatitis C is hidden,” Mollico said.Many employers, like 84 Lumber, were blindsided by the spike in specialty drug costs, according to Shari Davidson, vice president of the National Business Group on Health. In the case of Sovaldi, doctors were advising patients to wait for better or cheaper medication, which created a rush for the drug as soon as it hit the market, catching employers off-guard.“What’s concerning is that many people were warehoused, meaning they were waiting for Sovaldi to come out,” she said “They were told, ‘If your liver isn’t damaged, wait.’ There was a built-up demand.”In 2014, prescription drug spending in the United States increased 13.1 percent, the biggest annual increase in over a decade. This increase in overall drug spending is tied to an unprecedented rise in spending on new hepatitis C treatments and compounded medications, according to a report by Express Scripts Holding Co., the nation’s largest pharmacy benefit manager. Compounded drugs are typically used to treat scars, wrinkles and pain.Before 2014, hepatitis C medications weren’t among the top 10 costliest specialty drugs, but they are now No. 4 in terms of per-patient spending, according to the report.Price Wars and PBM DealsThe landscape is changing as PBMs, insurers and employers put pressure on drug manufacturers to lower their prices for hepatitis C treatments. Express Scripts led the charge when it made a deal with Gilead’s rival, AbbVie, to exclusively offer its drug Viekira Pak on its largest plan. Gilead saw its stock price tumble as a result. Shortly after that, AbbVie struck a similar deal with CVS to offer Harvoni. Other PBMs, including EnvisionRx and Catamaran Corp. (which is being acquired by UnitedHealth Group Inc.), followed suit in negotiating deals with drugmakers, as have insurance companies including Aetna Inc. and Blue Shield of California.In February, Gilead shocked investors by announcing expected discounts of 46 percent on Sovaldi and Harvoni for 2015.The introduction of AbbVie’s Viekira Pak was a game-changer, according to Seth Friedman, vice president of client management at Solid Benefits Guidance, a pharmacy and employee benefit consulting firm.“Viekira Pak changed the dynamic because it introduced competition,” he said. “Sovaldi spurred a lot of noise because it had no competition, but the landscape is changing.”Meantime, employers are scrambling to alleviate some of the sticker shock. Some are requiring employees to participate in disease management programs to help them stick to the treatment and using step therapy, which requires patients to try a less expensive medication before moving up to a more expensive one, and by imposing restrictions on who gets treatment. They are also working with their benefits advisers, PBMs and health plans to establish usage criteria, something that the NBGH is advising all of its members to do.According to a November 2014 survey of 42 NBGH members, nearly 80 percent of employers that offer hepatitis C medications use prior authorization criteria that includes having a specific genotype of the virus, covering only patients who have the active virus, and covering patients who have liver damage.While the increased competition for hepatitis C drugs and discount deals with PBMs benefit employers, patient advocates say it does little to increase access to treatment.ON THE WEBUnitedHealth Group Inc.’s recent proposed acquisition of Catamaran creates a third major pharmacy benefits manager to help employers navigate the pharmacy market.Workforce.com/MergerOptionsRyan Clary, executive director of the National Viral Hepatitis Roundtable in San Francisco, said that some restrictions are unreasonable, particularly those imposed by state Medicare and Medicaid programs.“The restrictions placed by private and public payers on hepatitis C treatment can be severe,” he said. “They are blanket restrictions, like you must be sober for six months or you must have advanced liver disease. We believe that somebody with a chronic life-threatening illness like hepatitis C who wants to be cured, should be cured, and insurance should cover it.”If cost is the impetus for restricting access to medication, employers and insurers must realize that they will have to pay eventually, Clary said.“You have to weigh that cost against the cost of end-stage liver disease, of a liver transplant and hospitalizations,” he said. “Then, expanding access is not only humane but cost effective.”Employers fear that as more people get tested for the virus, as the CDC recommends, there will be an increase in patients seeking treatment, according to Alan Franciscus, founder of the Hepatitis C Support Project, a nonprofit advocacy organization. But testing and educating people about hepatitis C are the way to eliminate it, he said.“One thing I hear is: Why should we test if not everyone can be treated?” he said. “We can give people information about lifestyle changes and tell them how to prevent the spread of hepatitis C, like making sure that your blood doesn’t mingle with others.”Davidson of the NBGH is hopeful that continued advances in treatment, more testing for the virus and declining costs will mean the end of hepatitis C.“It’s the hope that we will nip it in the bud and move on,” she said. “If everyone in the U.S. was treated, its possible that we could see the elimination of this disease in our lifetime.”Until then, concern about the cost of treatment will be weighing on employers, according to Davidson, who said that “hepatitis C comes up in every conversation.”Nearly 70 percent are tracking the costs of covering these new drugs, reporting costs ranging from zero to $2 million, according to the NBGH survey. But a little more than a quarter have estimated the cost if everyone covered under their health plans with hepatitis C were to be treated. Most have no employees diagnosed with hepatitis C and anticipate no impact, but employers that do estimate costs ranging from $3 million to $56 million.“We’ll continue to ask our members what kinds of trends they’re seeing, if per-patient costs are going down now with new discounts, how management programs are working and how adherence is impacted,” Davidson said.She said that finding ways to manage these new hepatitis C drugs could help prepare employers for other new specialty drugs in the pipeline. “This is a precursor for other types of drugs as they come out,” she said. “We will see more blockbusters changing lives of people with not just rare diseases, but with high cholesterol or cancer.”However, that worries Krusing who calls Sovaldi “the canary in a coal mine” when it comes to the future of specialty drug costs.“We’ve seen tremendous concern that drugs coming to market increasingly may not have a competitor or may be in a market of its own,” she said. “With AbbVie and Gilead, the competition has helped, but it hasn’t addressed the underlying concern, which is that as prescription drug prices increase, you’re starting negotiations at much higher levels. Competition is good, but it doesn’t really help when you begin negotiating from $89,000.”